Flow of Unwanted Oil From China Is Set to Turn Into a Deluge - Bloomberg Page 1 of 5

Business

Flow of Unwanted Oil From China Is Set

to Turn Into a Deluge
Bloomberg News
17 มกราคม 2018 5:00
Updated on 17 มกราคม 2018 17:40

2018 net fuel exports to rise 31% vs 7% growth in 2017: CNPC

Diesel shipments seen soaring 47% as export quotas expand

The pace at which China exports the fuel it doesn’t want is set to jump by more than
four times in 2018, according to the nation’s biggest energy producer.

That’s a harbinger of bad news for processors in the rest of Asia -- from South Korea
to Japan and India -- who now have to contend with higher crude prices as well as
the threat of the flood dragging down refining margins. Government-issued quotas
to sell oil products abroad may also expand this year in order to ease a large
supply glut in the domestic market, an analyst at China National Petroleum Corp.
said on Tuesday.

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China’s net oil-product exports -- a measure that strips out imports -- may climb
about 31 percent to 46.8 million metric tons this year, CNPC said in its annual report
released in Beijing. Shipments rose about 7 percent in 2017.

In particular, exports of diesel -- also known as gasoil -- are expected to soar 47 percent to
23.8 million tons in 2018 from a year earlier, according to the CNPC report.

While surging demand for diesel -- used to power everything from trucks to
irrigation equipment and ships -- has driven
<https://www.bloomberg.com/news/articles/2017-09-27/forget-opec-the-acronym-
really-driving-oil-prices-is-ulsd> a rally in oil prices, the expected jump in exports
from China may dilute the gains that can be made from selling the fuel in Asia.
Profits from turning crude into gasoil in the region are currently near the highest
level since 2015, enjoying a renaissance
<https://www.bloomberg.com/news/articles/2017-11-01/oil-traders-set-sights-on-
seas-as-diesel-renaissance-gets-going> as inventories have shrunk.

The effect that China’s fuel exports can have on margins was illustrated in 2015 when cargoes
from the nation swamped the Asian market, dragging profits from making the fuel in the
region to below $8 a barrel and the lowest level in at least five years. The so-called crack
spread was at $15.65 a barrel as of 6:57 p.m. Seoul time on Wednesday.

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While China’s domestic apparent oil consumption will still rise 4.6 percent to 615 million
tons, the pace of growth will be slower than last year, according to the company.

Economic Shift

That’s because of factors including President Xi Jinping’s pledge to focus on quality rather
than quantity for economic growth, property market adjustments and stricter environmental-
protection policies.

While China tightened its fuel export quotas in 2017 over concerns that excessive imports and
overseas shipments of commodities may cause air pollution, it’s likely to expand the
allocations this year, said Li Ran, an analyst with CNPC’s Economics & Technology Research
Institute.

The government has traditionally used a quota system to manage outbound

shipments, issuing regular allotments that specify sales volumes.

Other highlights from the annual report include:

Net crude imports in 2018 may rise 7.7 percent to 451 million tons, with an
import-dependence rate of 70 percent.

Oil-products demand may grow 1.9 percent to 331 million tons in 2018 from a
year earlier.

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The country may add 36 million tons of new refining capacity this year, with
crude processing rising 5.2 percent to 598 million tons.

Natural gas demand may rise 10 percent year-over-year to 258.7 billion cubic
meters

Natural gas imports seen increasing 13.4 percent to 105 billion cubic meters

Imports by pipeline seen expanding 12.6 percent to 48 billion cubic meters,

while LNG supply may rise 14.2 percent to 41.04 million tons

— With assistance by Heesu Lee, and Sarah Chen

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